Talking real development

It is an upper-middle-class, industrialized-country fiction to romanticize life on a small farm. Economic development and food security lie in industrialized agriculture, and this is why I continue being interested in agricultural value chains. My thinking on this has also been reinforced by my recent reading of Jane Jacobs’ The Economy of Cities, in which she posits that agricultural development came as a consequence of urbanization, and not the other way around.

That is Marc on his blog here.

Reading Marc’s post reminded me of my beef with anti-poverty development as it is currently practiced. For instance, the humanitarian instincts behind giving poor slum dwellers loans to start businesses may be noble, but the impact of these projects are ambiguous (Not forgetting the recent trends in Venture Capital firms making money from high interest rates on the poor).

Such projects, for the most part, serve little more than giving the poor comfort in their poverty. Yes, there are a few success stories, but for the vast majority life remains precariously close to abject destitution. Self-employment is a risk that should not be forced on those at the very bottom of the economic ladder in developing countries.

Such palliative measures should never distract from the main task of long-term job creation.

The growing disillusionment with the long-term developmental effects of micro-finance should force development experts to think of creative alternatives.

What could be an alternative?

Well, for starters it might be more beneficial to boost the capacity of banks to give loans to mid-size businesses that have the technical and managerial capacity to scale up their operations and thus create more jobs. Corporate finance in most of the developing world has no “middle class.” Nearly all the players are big firms. Mid-size firms simply cannot keep up with the high interest rates and collateral requirements. Yet these are the firms that have the potential to grow and create more jobs.

This move smells of trickle down economics, but it is not. Poverty alleviation requires massive amounts of job creation. Making the poor self-employed distracts from the bigger problems of non-industrialization and lack of formal-sector jobs.

It is also bad for political development because it provides Hirschman’s exit option for millions of economically disaffected citizens of the developing world.

Check out Blattman’s blog on a related post on NGO activism in the developing world.